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| | Master the above and you will both ace exams and be able to run a successful business. Experienced business managers state that profitability is made by reducing expenses. This has certainly been true for Wal-Mart. It is constantly driving costs down with its suppliers. Remember: a penny saved is a penny earned. Actually, due to taxes, saving a penny is sometimes worth more than a penny earned. | | Master the above and you will both ace exams and be able to run a successful business. Experienced business managers state that profitability is made by reducing expenses. This has certainly been true for Wal-Mart. It is constantly driving costs down with its suppliers. Remember: a penny saved is a penny earned. Actually, due to taxes, saving a penny is sometimes worth more than a penny earned. |
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| | + | == Obstacles to Reducing Costs == |
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| | + | Can you think of obstacles to controlling and reducing costs in a business? Here are three reasons why costs increase more than you might expect as an owner of a firm: |
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| | + | 1. '''''In the short run''''', you have diminishing marginal productivity. Additional employees are not likely to be as productive as your first employees, for example. Diminishing marginal productivity results in higher average variable costs (AVC), because AVC = TVC/Q and your TVC (total variable costs) are increasing faster than your output Q when there is diminishing marginal productivity. |
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| | + | 2. '''''In the long run''''', you may have decreasing returns to scale. Note the difference between returns to scale, which is a "long run" concept, and marginal productivity, which is a "short run" issue. In the long run, the bigger you become, the more difficult it is to manage all your "inputs" (workers and inventory and every supply and service you need to run your company). Waste can easily get out of hand. |
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| | + | 3. '''''In the long run''''', your firm may also see rising prices for your inputs. Your suppliers increase their prices periodically. Inflation can hit you hard as the CPI increases from year to year. Scarce resources may become even scarcer, unless you can find substitutes for them. |
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| | + | It's not easy to run a business, which is why 9 out of every 10 new businesses fail, and most success businesses eventually fail also. But if you can control and reduce your costs, as Wal-Mart does, then you can succeed. |
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| | + | == Gresham's Law == |
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| | + | <discuss [[Gresham's Law]], and ask if good discussion can drive out bad? E.g., start discussing the Bible and watch atheists disappear.> |
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| | == More == | | == More == |
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| | Businesses themselves, however, often dislike competition because it can reduce their ability to earn profits. To protect consumers, federal laws limit the ability of businesses to reduce competition. | | Businesses themselves, however, often dislike competition because it can reduce their ability to earn profits. To protect consumers, federal laws limit the ability of businesses to reduce competition. |
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| | ==Homeschool Dinner Event== | | ==Homeschool Dinner Event== |
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| | <add section about the "marketplace of ideas"> | | <add section about the "marketplace of ideas"> |
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| − | == Gresham's Law ==
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| − | <discuss [[Gresham's Law]], and ask if good discussion can drive out bad? E.g., start discussing the Bible and watch atheists disappear.>
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| − | Add this:
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| | ==Harmful Goods and Services, and Addictions== | | ==Harmful Goods and Services, and Addictions== |